DEM SEH NUH MORE MEK INA CHINA OO

“Made in China” no more
Manufacturers look to dispel the low-grade image of goods by qualifying for coveted Made in Europe label

Wang Fengying, President of Chinese car-maker Great Wall Motors, poses for a picture at a newly opened factory near the town of Lovech, 150 km north-east of Sofia. Photograph: Stoyan Nenov/Reuters
China has grown increasingly friendly towards Europe as the EU’s sovereign debt crisis unfolds, and it is gently but steadily advancing its pawns in the single market. There are still few Chinese-owned factories in Europe, but Beijing has been advancing its interests over the last three years.

China first focused its attention on Greece, the aim being to make Piraeus, in the Athens suburbs, the main point for goods entering the European market. The port is now dominated by the China Ocean Shipping Company (Cosco), which has been operating two terminals there since 2009. In 2010 Prime Minister Wen Jiabao kicked off a European visit there, meeting policy makers and business leaders from France, Portugal, Italy, Belgium, and above all from Greece.

Since Cosco’s arrival in Greece, exports to China have increased by 50%. Beijing wants to step up investments in the country, in particular in telecommunications, banking, car manufacture, railway infrastructure, property, catering, electronics, textiles and glass. But as well as investments linked to Greece’s current financial woes – with central banks offering risky, but high-yield bonds – or company takeovers, the Chinese are keen to locate production facilities on the European mainland.

Last month the car manufacturer Great Wall Motors fired up an assembly line in Bulgaria. “It’s the first Chinese car factory to produce in Europe for Europe,” said an executive from the firm’s Bulgarian partner company.

As yet there are no Chinese production plants in France but there are plans to open a Franco-Chinese business park near Châteauroux, in western France. It will specialise in assembling parts and sub-systems manufactured at low cost in China. Thanks to this partnership, goods will qualify for a “Made in Europe” label, thought to be more reassuring than its Chinese counterpart.

These “companies must remedy the poor or nonexistent brand recognition they enjoy abroad,” urged a report published in 2009 by France’s economy, industry and employment ministry, “and build an image for quality thanks to products at least as good as those of European or foreign competitors already operating in Europe. They need to rise above the often negative image associated with their goods, particularly as European consumers tend to assume low prices go hand in hand with poor quality.”

Hervé Solignac Lecomte, head of international trade at HSBC France, endorses this view. “Chinese companies want to dispel the ‘low-grade’ image of their manufactured goods. So they are trying to improve their position in the value chain by relocating all or part of their output in Europe,” he says.

Chinese manufacturers had suffered some serious setbacks before starting production in Europe. In 2011 Poland tore up a contract with China Overseas Engineering Group Co Ltd for the construction of a motorway between Warsaw and Berlin, only a year after the start of the project. The Polish public works department cited “delays” to explain its decision.

Now instead of just operating as the workshop of the world, while staying at a safe distance from the markets – and consumers – it wants to win over, China is rethinking its strategy. “GWM’s Bulgarian plant is located close to potential customers and distribution channels,” Lecomte explains.

This is borne out by China’s determination “to invest primarily in sectors that will boost its foreign trade, but also facilitate international trade in general, areas such as air, rail and sea transport, infrastructure, and the associated logistics services and storage facilities,” Lecomte adds.

“China wants to secure multiple points of access to Europe for its products. It’s a more proactive and potentially less costly strategy, particularly with the high price of oil, which substantially adds to the cost of freight,” Lecomte says. France has adopted the same approach by relocating vehicle production to Morocco.

While companies may relocate production facilities, the centre of operations has remains fixed. “The [regional] headquarters of Chinese firms are often located in London, which is Europe’s main financial centre. But decisions are still taken in China and the system is still centralised. The yardstick is always the company at home in China,” Lecomte says.

“We are currently seeing the installation of Chinese production units in Europe,” he adds. “But I think that ultimately China will set up more integrated facilities here, with decision-making powers as well as production.”

This article originally appeared in Le Monde

Banking on Europe

Great Wall Motors and its Bulgarian counterpart Litex launched production of three models at their Bahovitsa plant last month.

GWM aims to manufacture 50,000 vehicles a year there. For now the factory is forecasting “several thousand” city cars, saloons and pick-ups, with prices ranging from €8,200 to €14,600 ($10,800 to $19,270). The parts will be imported from China and assembled in Bulgaria, permitting duty-free access to the European market.

Just as western manufacturers want a share of the oriental cake, their Chinese counterparts are queuing up to locate to Europe.

The GWM factory is not the first Chinese plant in Europe. MG, which was bought up by Nanjing-SAIC in 2005, assembles its MG TF and MG6 models at Longbridge in the UK. Similarly the Chinese manufacturer Geely, which bought Volvo and Manganese Bronze in 2010, is now rolling out its EC7 saloon.

General Motors baulked at selling Opel and Saab to Chinese firms, respectively BAIC in 2009, and Pang Da and Youngman in 2011. But the latter may sale now go ahead as the Swedish brand is in receivership.

By the end of 2012 DR Motors of Italy aims to produce Chery models at Fiat’s former factory in Sicily. In partnership with Israel Corp, the same Chinese company is developing a new brand, Qoros, for European markets.